As for the decision to work with what you've got or build an addition, consider a calculation from Dean Bennett, president of a Colorado-based design and construction firm, who says adding square footage often makes good sense. Here's a dollars and cents way of looking at it: Divide the total cost of the addition by the number of square feet added and then compare that number to the cost per square foot of what homes in the area are selling for. For example, a $75,000 addition of 400 square feet would cost $187.50 per square foot. Compare that figure to the price per square foot of recent sales of comparable houses in the neighborhood -- 1,500-square-foot homes would have to be selling for more than $281,250.

This type of calculation is something bankers will do when a homeowner is applying for a loan for an addition, Bennett explains.

Still, he adds, "Determining if a home improvement project is worth it is more often about making things more livable for the homeowner." That's an intangible, of course. Will a more convenient and nicer bathroom make the house worth more, in the perspective of the homeowner and/or a potential buyer? It's hard to say.

Long and short of it
How long one intends to live in the house makes a big difference in terms of how many improvements should be made.

Nelson sees two groups: homeowners with no regard to neighborhood or community environment because they can't imagine selling, and homeowners who make improvements based only on neighborhood/community environment so they can sell within five years.

It's important to keep in mind, Nelson cautions, that given today's market homeowners who have to borrow the money for an improvement project may have a tougher time doing so. "Underwriting guidelines are becoming more stringent every day right now in the residential mortgage market because of the massive amount of foreclosures and/or short sales happening around the country. Therefore, if you need to borrow the money by attaining a renovation loan or a home equity line, expect the approval process to be a bit harder than it was even one year ago."

Regardless of whether the money comes from savings or from a loan, make peace with the fact that an instant and equal boost to your home's value won't happen. "There is nothing you can do to a house that is immediately going to get you back dollar for dollar what you spent," says Don Zeman, builder, contractor and host of the radio show "Homefront." Take a kitchen renovation, for example. "If you enjoy it for 10 years and it appreciates, maybe you've made a little money on that investment. If you sell the house tomorrow, you're not going to get your money back."